Strategic Planning
Determines how the supply chain will support the corporate strategy typically over the next 2 to 5 years, in quarterly and yearly planning periods. Usually done once a year in tandem with the budget plan. Here the supply chain team is looking to support the increased material, capacity and distribution footprint, which could involve green field manufacturing, acquisitions as well as understanding how new products are to be built and the materials, storage and equipment required. Various scenarios will be measured against cost of investment, timing and corporate metrics. A business case will be created to evaluate the potential upside and then various options will be finalized by senior leadership.
Budget Planning
Taking the financial and commercial budgets as input, the budget plan is typically done once a year across 2-3 cycles for the next 12 to 24 months, in monthly and quarterly planning periods and will look to operationalize the strategic plan. The location of the increased capacity (manufacturing, storage and distribution) such as new plants, new DCs, new lines in existing plants, additional space in existing DCs and revised distribution network will be determined based on the combined cost of manufacturing and transportation. The manufacturing and distribution locations of existing and new products, the inventory levels across the network and the required quotas to existing and new suppliers to support raw material needs will be evaluated. Each budget cycle will be reviewed by business leaders and refined, and the finalized budget will be the number the financial, sales and operations organizations will be working to for the following year.
Integrated Business Planning (IBP) / Sales & Operations Planning (S&OP)
This is considered to be one of the most crucial planning processes and takes the strategy and budget and translates that to something that can be executed. However, according to leading consulting companies such as Oliver Wight, McKinsey and Bain & Company most enterprises do not align strategy and execution well and the strategy is lost in operations (1). IBP/S&OP is typically a monthly process for the next 12 to 18 months, in monthly planning periods and in essence looks to balance demand with available supply and understand the impact on financial and business metrics to align any imbalances. Traditionally, the process follows several sequential steps detailed as follows, however current best practices are looking to continually balance demand and supply, as it changes, in order that the strategy and execution stay aligned. Depending on the industry and environment, the first step is to review the current portfolio of products and determine products to remove and the impact of new products. The next step is to finalize the demand (forecast, customer orders, stock orders), once the demand is finalized the supply (procurement, production, distribution and inventory levels) are finalized. The product, demand and supply plans are reviewed in a PreIBP/S&OP process with operational leaders from relevant groups, in preparation for the Executive IBP / S&OP process where executives review imbalances and finalize on the best options to proceed with. Each month the IBP/S&OP plans are reviewed with the budget plan and where required the budget plan and strategic plan can be updated based on the IBP/S&OP plan.
Master Planning
From an implementation perspective, this is a very common starting point and is the process that looks to execute on the IBP/S&OP plans. It typically takes place every week and plans for a 26-52 week horizon, in weekly and monthly planning periods. The master planning process develops comprehensive procurement, manufacturing, distribution and inventory plans considering detailed constraints such as vendor fair share, raw material transitions, product freshness, minimum quantities, handling and storage constraints and distribution lot sizing. Depending on the industry the IBP/S&OP supply plan will use a global optimization (linear programming) solver to determine where something should be made and distributed, generally based on the lowest cost. The Master Plan will take that decision and using a heuristic solver and many more constraints, plan it at a more granular level in that given plant or distribution center. This plan is usually shared with suppliers, plant planning and distribution center teams to execute on.
Production Planning
All of the plans mentioned so far typically get generated at the corporate facility or central office. The production plan is usually generated at the given factory and is created, at least, daily to multiple times a day for the next 8 to 16 weeks, in daily and weekly planning periods. There can be one master planning model feeding multiple individual production planning models. The production plan gets into very specific and granular material constraints such as use and date effectivities, min, multiple and max order quantities, blanket purchase orders, and for capacity considers the individual operations in a given routing. Each operation can then have specific resource (equipment and operator) constraints. The production plans are commonly fed as frozen production (work in progress) to the master planning and sometimes IBP/S&OP plans for the duration of the production frozen period. The frozen plans are detailed plans and schedules which the factories have committed to.
Production Sequencing & Scheduling
The production plan will detail all of the production orders that will be made in a given day based on available material and capacity. This process will then take those orders and put them in the required sequence and / or schedule. Sequencing or scheduling is typically done multiple times a day for the next 2-4 weeks, with the schedule specified as a point in time and not across planning periods. In general, a sequence is adequate in flow shop environments, where the product moves from one station to the next at a standard Takt time. Here the sequence or slotting order is dictated by detailed production constraints such as how many of a specific type of product can be made back-to-back, what are the maximum number of a product type that can be assembled each day, etc. Schedules are generally required in a job shop environment where product flows, in different ways around the shop floor depending on the resources that are required. The schedule details not only the order, but the exact time each production order is to be processed. Here, sequence dependent setups are very important, where the production team are looking to minimize change overs. In environments such as a paint shop, the scheduling team will look to create schedules that group work where the colours will go from light to dark and then from dark back to light, while in the metals industry mill schedulers create what are known as coffin schedules grouping work from short to long widths and then from long to short widths. Here the widths of the rolled metal form a coffin shape, hence the name.